Benefit charities and make the most of tax concessions

11 January 2018

Inheritance Tax (IHT) is normally charged at 40% on a deceased’s estate, after any relevant exemptions. However, if you have a potentially taxable estate and wish to benefit charities in your Will, then it is now possible to reduce this IHT rate to 36% on your estate by leaving part of it to charity.

Gifts in your Will must be left to UK charities or registered community amateur sports clubs and these are in themselves exempt from IHT. Broadly speaking, where 10% of your estate is left to these charities or clubs, then the IHT rate can be reduced to 36%. 

However, the detailed provisions in the tax law are complex and involve considering the different ‘components’ of the estate (such as joint assets, solely-owned assets and any trust assets that are aggregated to the estate) along with the application of IHT reliefs and the relevant proportion of the estate passing to charity. It is also possible to elect to merge different so-called components in order to obtain the relief. It is important therefore to take professional advice when drafting a Will, as there are a number of options to consider.

It is possible to make changes to an estate after death in order to qualify for the relief either where the estate is left on discretionary trusts or a beneficiary is willing to alter what they are due to receive under the Will. Again, if you are an executor, trustee or beneficiary, professional advice should be taken in order to make sure that any appointment from a trust or variation of an estate will operate correctly and qualify the estate for the relief.

Gift Aid

If you want to make charitable gifts during your lifetime, a donation to a charity through Gift Aid is treated as having been made after deduction of the basic rate of income tax and therefore the charity can claim back from the government 25p for every £1 donated, boosting the value of the donation by a quarter.

You can opt into a separate Gift Aid Scheme when you donate items to a charity shop too. According to the Charity Retail Association, in the 2014-15 tax year nearly £80m was raised for charitable causes through retail gift aid, representing nearly 30% of the total profit of the charity retail sector.

In Norfolk, Priscilla Bacon Hospice, an end of life care charity which launched in August 2016 to raise £12.5m to expand the current specialist palliative care provisions for the county have opened two innovative ‘pop-up’ shops constructed from stripped and refitted shipping containers; a design based on the world’s first pop-up mall in Shoreditch, London. Charity Trustee Anna Dugdale said “These shops give us access to new and interesting sites around the county. Our shops support the costs of running our campaigns, meaning every penny goes towards the provision of new 

The content of this article is for general information purposes only. For further information on lifetime gifts please contact a member of Birketts' Private Client Advisory Team.

This article is from the winter 2017-18 issue of Private Lives, our newsletter covering the key legal and tax issues that individuals face. To download the latest issue, please visit the newsletter section of our website. Law covered as at January 2018.

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